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>>> ADM Rises After Revising Years of Internal Unit Sales


Bloomberg

by Gerson Freitas Jr.

March 12, 2024


https://finance.yahoo.com/news/adm-revises-years-internal-sales-111050920.html


(Bloomberg) -- Archer-Daniels-Midland Co. investors appeared to breathe a sigh of relief Tuesday, driving the commodity giant’s shares higher after its delayed annual report didn’t deliver the kind of bombshell financial revelations some had feared.

In its annual report, ADM revised its intersegment sales for the last three years following an internal probe into its financial reporting and disclosed a $137 million impairment charge related to its animal nutrition unit. ADM confirmed in its annual filing that the various adjustments didn’t impact overall earnings.

“ADM could have been worse,” Vital Knowledge wrote in a note after the company provided a long-awaited update on its internal investigation into its financial reporting. It also reported quarterly results, offered guidance for 2024 and announced a $2 billion share buyback, which together helped drive shares higher, it said.

Shares rose as much as 5.6%. ADM’s stock price had earlier fallen about 19% since Jan. 19, the last trading day before it disclosed the investigation.

The adjustments and charge gave investors one of their first indications of the magnitude of the scandal that had wiped out more than $7 billion in ADM’s value since first disclosed earlier this year. Overall, the adjustments “were not as significant as some feared,” analysts for Citi Research said in a note, calling the changes “relatively minor.”

In January, ADM stunned the agricultural trading and processing world when it suspended its chief financial officer, Vikram Luthar, pending a probe into accounting practices at its nutrition unit following a request for information from the US Securities and Exchange Commission. The company said little about the probe in subsequent weeks, before disclosing earlier this month that the “material weakness” it had uncovered in its internal controls wasn’t expected to have a broader impact on earnings.

“The company did not have adequate controls in place around measurement of certain intersegment sales” between its nutrition segment and other key units, Chief Executive Officer Juan Luciano said in the filing. ADM has put in place a plan to remediate this material weakness, it said. Luciano said on an earnings call that he would not take questions about the investigation.

The changes include a $31 million reduction in 2023 segment operating profit for the nutrition unit, and cuts of $68 million and $59 million in 2022 and 2021, respectively. It also restated gross revenues for the segment. In addition, it has released adjusted segment operating profit going back to 2018. The investigation covered the period between January 2018 and September 2023.

To be sure, ADM is not out of the woods yet. The company confirmed in the filing certain current and former employees have received subpoenas from the Department of Justice.

ADM has spent billions expanding its nutrition business since 2014, when it made its biggest-ever acquisition — the $3 billion buyout of European natural ingredient maker Wild Flavors — in a bid to diversify from row crop grains and oilseeds into processed products. ADM also spent about $1.8 billion to buy an animal feed maker in 2019. But the unit’s profits have failed to live up to initial expectations due to weakening demand, including for plant-based food, raising questions about ADM’s big growth bet.

In a separate filing, ADM reported fourth-quarter earnings and offered 2024 guidance. It sees adjusted earnings per share in the range of $5.25 to $6.25 per share, down 18% compared to 2023 using the midpoint of the range.

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